The Role of the Financial System in Criminal Organizations, Money Laundering, and the Design of Anti-Money-Laundering (AML) Policies: Striking a Balance between Prosecution and Prevention
Alejandro Werner
Roberto de Michele
Criminal organizations rely on the financial system to move and use their illegal profits, disguising them through a process known as money laundering. Illicit funds from crimes are first blended with legitimate business income, then transferred and layered through the financial system to hide their origin.
The global anti-money-laundering and combating the financing of terrorism (AML/CFT) framework, set by the Financial Action Task Force (FATF), was originally designed to help prosecute money laundering and related crimes, especially drug trafficking. As a result, many countries adopted frameworks focused primarily on criminal investigations. While still important, this approach is challenged by several factors, including increasingly sophisticated criminals capturing legitimate markets and, in Latin America and the Caribbean, large informal economies and heavy cash use.
Financial intelligence units (FIUs) are at the center of these frameworks and play a key role by collecting, analyzing, and sharing information on suspicious activities. However, growing operational demands and requests from other agencies have shifted their focus away from strategic analysis and feedback to the private sector.
The paper argues that the traditional prosecution-centered model overlooks the value of a strategic, preventative AML approach. This strategy would “tax” criminal activity by making it harder and more costly for criminals to use the financial system—through better detection, penalties, and system design—while minimizing burdens on legitimate users. We propose to tip the balance to preventative policy measures, especially using digital technologies to improve compliance and reduce costs. These measures are meant to complement, not replace, prosecutions. This paper ultimately reviews why AML matters, how the framework has evolved, challenges in Latin America and the Caribbean, limits of the prosecutorial model, and policy options to strengthen prevention.

Criminal Governance in Latin America
Ana Arjona
Andreas E. Feldmann
Criminal governance—when organized criminal groups regulate the behavior of local residents—has become one of the most consequential challenges confronting contemporary Latin American societies. In the areas where criminal groups operate, they often regulate economic, social, and political life, establishing parallel institutions, resolving disputes, extracting revenue, and offering security and services. Once primarily associated with fragile states, criminal governance has spread across a wide range of contexts, including relatively strong and democratic states in Latin America. This policy document synthesizes three decades of interdisciplinary research on the topic, drawing on 169 academic studies published since 1990 and original fieldwork conducted by the authors across several Latin American countries. It explains how criminal groups govern; presents competing theories about when and why they take on governance functions; and assesses the social, political, and economic consequences of these local regimes. It then reviews evidence on key policy responses—including militarized enforcement, community-based interventions, and negotiation—highlighting their strengths, limitations, and unintended effects. The document concludes with recommendations for designing more effective policies to confront criminal governance and mitigate its harms. It also outlines avenues for future research and data collection.

